opinion

Depressed crude oil bearish for agriculture commodities

Just over a month ago, crude oil markets were surging higher. The December WTI futures price hit $76.72 per barrel. This week, the same contract hit its lowest mark since December 2017, falling 28.6 percent from the aforementioned high. The market is falling with large stocks and production capacity weighing on markets.

From an agriculture perspective, this points toward lower returns for biodiesel and ethanol producers, potentially limiting demand for feedstock corn and fats. There are a lot of fundamental drivers to keep an eye on, even with harvest done (or nearly done) for crops. Exports are an uncertainty with the value of the U.S. dollar and trade disputes. But do not overlook the impact of lower crude oil on demand in a year when domestic supplies are already swollen.

Wheat

Wheat markets ended last week with a big rally but traders took back much of that gain by midweek. In truth, there has been a serious lack of clear price direction to make wheat move one way or the other.

On the bull side, there are lower global stocks than a year ago. It is no secret that the EU and Russia had smaller crops and Australia's drought has been well covered. As a result, Canada and the U.S. are expected traders.

For the bears, the strong U.S. dollar is limiting sales of wheat. Additionally, wheat area is expected to increase in the U.S. in the coming year after declines in the last few years. The daily ups and downs will continue as strong technical support will limit downside for wheat markets. But do not hold out for a major rally without a key fundamental change. Durum Durum markets are holding steady. There have not been any major developments in recent weeks. Prices have little hope of support with good supplies on hand. Canola Canola prices remain depressed heading into the winter. For all intents and purposes, the harvest effort is done and all that is left is to see how actual production stacks up against expectations.

Seed demand has been slow and exports to the U.S. have been weak. With pressure on the soybean complex as well as palm oil on huge stocks, canola has not been able to resist the pull lower. Palm oil stocks are huge in Malaysia and Indonesia, with Malaysia reportedly importing excess oil from Indonesia at low prices for processing into biodiesel and refined edible oil.

On top of that, the trade war with China continues for the U.S., leaving huge supplies of soybeans as harvest is wrapping up. The U.S. Department of Agriculture reported soybean harvest at 88 percent complete (though this is slightly behind the five-year average pace of 93 percent). Peas and lentils Even with pulses not exporting as well to India, farmers are expected to increase planted area in the coming year. Demand prospects are better than alternative soybeans, so planting peas or lentils is a good option. Farmers are still making planting decisions as fall harvest recently wrapped up. But it is never too early to start thinking about the plan for the coming year and how that will impact prices on a macro level. Mustard seed Mustard seed prices have been steady for the last week. Production seems to be quite good compared to a year ago, according to Saskatchewan Agriculture: output for all classes may reach 208,000 metric tons, up from last year's 121,600 metric ton harvest. This is well above Statistics Canada's previous report (19 percent above that previous estimate).